Saturday, May 12, 2007

Michigan Public School Pyramid Scheme

In Michigan, it's not just the Big 3 automakers who are burdened with the rising legacy costs of providing pensions and lifetime health benefits to a rising number of retirees - Michigan public schools are facing the same financial crisis.

Michigan is the only state that makes its public schools bear the entire burden of retiree pensions and health care. This year's bill -- an estimated $1,015 per student -- is more than schools spend on books, buses, computer technology and building maintenance combined (see top graph above). And it's going to get worse.

The retirement assessment -- set by the state but paid by individual school districts -- is now at a record high of 17.74% of each district's payroll. That rate is expected to jump to 30% by 2020 -- a level that all sides agree would break the backs of Michigan schools (see bottom graph above).

In many ways, the financial straits of Michigan's public schools mirror the plight of the Big Three. Detroit's automakers and the schools both have offered generous retirement benefits to retirees for decades. As retirees live longer and health care bills rise, retirement costs have skyrocketed. Most organizations that offer retiree health care are dealing with rising bills.